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Volta Finance Limited (AMS:VTA) NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES
***** Guernsey, 19 September 2008 - Volta Finance Limited (the "Company" or "Volta Finance" or "Volta") has published its August monthly report. The full report is attached to this release and is available on Volta Finance Limited's financial website (www.voltafinance.com).
Gross Asset Value
+---------------------------------------------------------+ | | At 29.08.08 | At 31.07.08 | |-----------------------------+-------------+-------------| | Gross Asset Value (GAV / €) | 159,160,332 | 166,184,738 | |-----------------------------+-------------+-------------| | GAV per share (€) | 5.30 | 5.53 | +---------------------------------------------------------+
As of the end of August 2008, the Gross Asset Value (the "GAV") of Volta Finance Limited (the "Company", "Volta Finance" or "Volta") was €159.2m or €5.30 per share, a decrease of €0.23 from €5.53 per share at the end of July 2008.
The August mark-to-market variations* of Volta Finance's asset classes have been: +0.4% for ABS investments, -1.7% for CDO investments and -9.7% for Corporate Credit investments.
On 15 September 2008, Lehman Brothers Holdings Inc (LBHI) announced that it was filing a petition under Chapter 11 of the U.S. Bankruptcy Code. This bankruptcy will have a significant direct impact on the expected cash flows of some of the assets held by Volta Finance. As a matter of fact, the Company's largest investments, ARIA II and ARIA III, as well as Jazz III, have direct exposure to the Senior Debt of LBHI and other financial companies.
MARKET ENVIRONMENT AND LATEST DEVELOPMENTS
The financial environment remained difficult in August. Markets still suffer from the ongoing difficulties of banks and financial institutions, as well as depressed economic growth.
From the end of July to the end of August, the spread of the 5y European iTraxx index (series 9) widened slightly from 92 bps to 100 bps, while its Crossover counterpart (5y iTraxx European Crossover index series 8) continued to widen from 523 bps to 550 bps. According to the iTraxx LevX Senior Index, the average price for European liquid first lien loans declined from 98.77% to 98.08%.**
Mid-September, the financial crisis went through some significant and exceptional events: - LBHI entered into Chapter 11. Around the same time, Bank of America announced its intention to purchase Merrill Lynch. - On Monday 15 September and Tuesday 16 September, American Insurance Group's (AIG) worsening situation turned into a full-blown liquidity crisis, followed by the Fed's USD85bn lending announcement to the world's largest insurer, hence effectively taking control of the company.
These events have so far affected the market in various ways, among them: - A credit event on LBHI Credit Default Swap (CDS). The recovery rate on the senior debt issued by LBHI is currently estimated at around 30%. - A violent widening of AIG CDS, first trading with 30% upfront + 500bp running on Monday and then 60% upfront + 500bp running on Tuesday. - A general credit spread widening: the ITraxx Main widened by 30bp on Monday September 15 from 100bp to 130bp and then by an additional 10bp on Tuesday September 16.
VOLTA FINANCE PORTFOLIO
Three assets, Aria II, ARIA III and Jazz III, have been directly affected and may continue to be affected by the jump-to-default of LBHI. More than that, the significant widening of AIG and other financial companies as well as the increased probability of other financial company failures will significantly depress the value of these investments, given that their underlying portfolios are significantly exposed to financial companies.
As of the end of August and still as of 17 September 2008, respectively 38.63% and 36.10% of the underlying portfolios of ARIA II and ARIA IIII, are exposed to financial companies (i.e. banks, brokers-dealers, insurance). More precisely, the portfolios were nominally exposed to the following US financial companies:
US financial companies nominal exposure of the underlying portfolios of ARIA II and ARIA III (1)
+-------------------------------------------------------+ | Name | ARIA II | ARIA III | |----------------------------------+---------+----------| | Merrill Lynch & Co Inc | 2% | 2% | |----------------------------------+---------+----------| | Morgan Stanley | 2% | 2% | |----------------------------------+---------+----------| | Lehman Brothers | 2% | 2% | |----------------------------------+---------+----------| | Goldman Sachs Group Inc | 2% | 2% | |----------------------------------+---------+----------| | GE Capital Corp | 2% | 2% | |----------------------------------+---------+----------| | International Lease Finance Corp | 1.6% | 2% | |----------------------------------+---------+----------| | Wachovia Corp | 1.4% | 2% | |----------------------------------+---------+----------| | CIT Group Inc | 0.7% | | |----------------------------------+---------+----------| | Bank of America Corp | 0.5% | | |----------------------------------+---------+----------| | Citigroup Inc | 0.5% | | |----------------------------------+---------+----------| | Bear Sterns Cos Inc | 0.3% | | |----------------------------------+---------+----------| | Ford Motor Credit Co LLC | 0.28% | | |----------------------------------+---------+----------| | GMAC LLC | 0.20% | | |----------------------------------+---------+----------| | Residential Capital LLC | 0.10% | | |----------------------------------+---------+----------| | American International Group Inc | 2% | 2% | |----------------------------------+---------+----------| | Berkshire Hathaway Inc | 1.75% | 2% | |----------------------------------+---------+----------| | The Allstate Corp | | 1% | |----------------------------------+---------+----------| | Chubb Corp | | 0.35% | +-------------------------------------------------------+
(1) Note that these figures are not estimates of losses incurred by the tranches in case of a default due to the leverage of Volta's tranches to these underlying exposures
As regard Jazz III, its exposure to financial companies is obtained through an underlying portfolio (the "Main Portfolio") exposed to CDS referencing various companies as well as a bespoke tranche (the "Bespoke Tranche") which is itself exposed to another portfolio of CDS referencing various companies. The Bespoke Tranche represents 3% of Jazz III's underlying portfolio. Both the Main Portfolio and the Bespoke Tranche are exposed to LBHI, AIG and other US financial companies.
The gross asset value of these three assets amounted to €62.7m (39.4% of the GAV of the Company) at the end of August. As of 17 September, if we do not take into account the significant widening of financial and corporate spread and consider only the default of LBHI and assume a hypothetical recovery at 30%, the estimate of the mark-to-market value of these three assets is €41.1m.. If we take into account the significant widening of financial and corporate spreads as well as a hypothetical 30% recovery on LBHI's default, the current estimate of their mark-to-market value is €20.1m.
Based on the hypothetical 30% recovery rate on LBHI's default, Volta Finance's ARIA III tranche is expected to lose 26.67% of its principal and of its future coupons. The Jazz III tranche is expected to lose 17% in principal but future payments will be almost unchanged as the payments are the result of an interest waterfall and are not directly linked to the remaining principal. The ARIA II tranche is not expected to be affected as regard its principal and future coupons, but the principal protection (cushion against further defaults or trading losses net of gains) is expected to dramatically decrease from 1.53% to 0.13%.
As regard the ABS asset class, one of the UK non-conforming residual owned by Volta, Eurosail 2006-1, is concerned by the failure of LBHI through its servicer Capstone, a subsidiary of LBHI that stands outside the bankruptcy perimeter. Even if the servicer is left untouched by LBHI's bankruptcy and that the deal is structured in such a way that a servicer failure would prompt its immediate replacement by HML, the largest UK servicer, this situation does create a certain level of uncertainty. As of end of August this asset represents 0.96% of the Company's GAV.
As regard the CDO asset class, the CDO manager of some of Volta's positions will have to substitute LBHI as counterparty for certain loan sub-participations or swaps. These substitutions have already started and the cost for our positions is expected to be non-significant.
The current events and the significant widening of financial and corporate spreads have an impact on the mark-to-market value of other assets held by the Company, even if these assets, which represent 59.6% of the end of August GAV, have no direct exposure to Lehman Brothers. These assets should not suffer any revision of expected cash flows due to the LBHI defaults
Given the ongoing volatility and uncertainties around structured products, Volta has maintained a significant level of cash in its portfolio (cash represents 15.8% of the GAV at end of August) and has not made any investment in August, nor in the first two weeks of September.
In the best interest of its shareholders, the Company will continue to reinvest the cash available (€25.2m at the end of August) without precipitation. As stated in the semi-annual report the Company expects to be in position to resume its dividends. An announcement concerning the dividend that will be recommended by the Board of Directors to the General Assembly will be made towards the end of October as part of the publication of the annual report. The Company will communicate on the precise publication date in the upcoming weeks.
* "Mark-to-market variation" is calculated as the Dietz-performance of the assets in each bucket, taking into account the MtM of the assets at month-end, payments received from the assets over the period, and assuming that changes in cross currency rates have no impact given that Volta Finance implements a currency hedge on non-euro assets. Nevertheless, some residual currency effects could impact the aggregate value of the portfolio when aggregating each bucket. ** Index data source: Bloomberg.
(Full monthly report in attachment or on www.voltafinance.com)
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ABOUT VOLTA FINANCE LIMITED
Volta Finance Limited is incorporated in Guernsey under the Companies (Guernsey) Laws, 1994 to 1996 (as amended) and listed on Euronext Amsterdam. Its investment objectives are to preserve capital and to provide a stable stream of income to its shareholders through dividends. For this purpose, it pursues a multi-asset investment strategy targeting various underlying assets. Volta Finance's basic approach to its underlying assets is through vehicles and arrangements that provide leveraged exposure. The exposure to those underlying assets is gained through direct and indirect investment in five principal asset classes: corporate credits, CDOs, ABS, leveraged loans, and infrastructure assets.
Volta Finance has appointed AXA Investment Managers Paris, an investment management company with a division specialised in structured credit, for the investment management of all its assets.
ABOUT AXA INVESTMENT MANAGERS
AXA Investment Managers (AXA IM) is a multi-expert asset management company within the AXA Group, a global leader in financial protection and wealth management. AXA IM is one of the largest European-based asset managers with €550 billion in assets under management as of the end of March 2007. AXA IM employs approximately 2,800 people around the world and operates out of 19 countries.
CONTACTS
Company Secretary Mourant Guernsey Limited volta.finance@mourant.com +44 (0) 1481 715601
Portfolio Administrator Deutsche Bank voltaadmin@list.db.com
For the Investment Manager AXA Investment Managers Paris Julien Laplante julien.laplante@axa-im.com +33 (0) 1 44 45 94 92
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This press release is for information only and does not constitute an invitation or inducement to acquire shares in Volta Finance. Its circulation may be prohibited in certain jurisdictions and no recipient may circulate copies of this document in breach of such limitations or restrictions.
This press release is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration with the United States Securities and Exchange Commission or an exemption from registration under the U.S. Securities Act of 1933, as amended (the "Securities Act"). Volta Finance has not registered, and does not intend to register, any portion of any offering of its securities in the United States or to conduct a public offering of any securities in the United States.
***** This document is being distributed by Volta Finance Limited in the United Kingdom only to investment professionals falling within article 19(5) of the Financial Services and Market Act 2000 (Financial Promotion) Order 2005 (the "Order") or high net worth companies and other persons to whom it may lawfully be communicated, falling within article 49(2)(A) to (E) of the Order ("Relevant persons"). The shares are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire the shares will be engaged only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents. Past performance cannot be relied on as a guide to future performance.
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This press release contains statements that are, or may deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "anticipated", "expects", "intends", "is/are expected", "may", "will" or "should". They include the statements regarding the level of the dividend, the current market context and its impact on the long-term return of Volta's investments. By their nature, forward-looking statements involve risks and uncertainties and readers are cautioned that any such forward-looking statements are not guarantees of future performance. Volta Finance's actual results, portfolio composition and performance may differ materially from the impression created by the forward-looking statements. Volta Finance does not undertake any obligation to publicly update or revise forward-looking statements.
Any target information is based on certain assumptions as to future events which may not prove to be realised. Due to the uncertainty surrounding these future events, the targets are not intended to be and should not be regarded as profits or earnings or any other type of forecasts. There can be no assurance that any of these targets will be achieved. In addition, no assurance can be given that the investment objective will be achieved.
